Montreal, Canada

In a world marked by compressing asset values since the "Flash Crash" on May 6th and the subsequent top of the stock market on May 20th, the precious metals stand out as some of the best performing assets in 2010. That trend is likely to continue provided that real or inflation-adjusted interest rates remain historically low amid sovereign debt contagion, accelerating currency debasement and the reluctance of major market central banks to hike interest rates in an unstable macroeconomic environment. This is still the "Perfect Storm" as it pertains for gold and silver.

Gold and silver have rallied 10% this year compared to a 7% loss for the MSCI World Index and -8.6% for the MSCI Emerging Markets Index. The S&P 500 Index is down 1%.

Silver is still cheap compared to gold as the chart below depicts. And with silver production now trailing demand I also think that silver will outpace gold on a total return basis over the next 12-24 months as inventories tighten and investment demand from ETFs continues to boom. I'm buying silver for my managed accounts this week at roughly $18 an ounce.

As the second half of the year quickly approaches, I suspect gold and silver will surprise most investors, especially the bears who still lack a clear understanding of why a bull market remains in place for the metals. That failure to understand the relationship between hard money, the destruction of credit and the fiat paper in which it is denominated has eluded those who believe we're in a "bubble." As I've commented before, the only investors that proclaim gold's in a "bubble" are those who've missed this rally since it started ten years ago.

Silver's high in this rally was $20.78 an ounce in March 2008. We should hit that level and violate resistance before the year is over. Silver's inflation-adjusted price since 1980 is $128 an ounce; it's quite possible that we'll reach half of that threshold before this rally is done.